OBLIGATIONS
• Reciprocal Obligations
Why is Obligation a Juridical Necessity?
In case of non-compliance, the courts of justice
may be called upon to enforce fulfillment or in
defult, the economic value it represents.
What are the requisites of an Obligation?
• Passive Subject (debtor/obligor)
• Active Subject (creditor/obligee)
• Object or Prestation (subject matter)
• Juridical or Legal Tie (vinculum or
efficient cause)
What are the Elements of Cause of Action?
Legal Right Correlative Legal Obligation Act or
omission in breach or obligation
**If elements are absent, it will be vunerable to
motion to dismiss.
Differentiate the kinds of obligations accdg to
subject matter
• Real Obligation - to give
• Personal Obligation - to do
Differentiate the kinds of personal obligations
• Positive Personal Obligation - to do
• Negative Personal Obligation - not to do
Sources of Obligations
• Laws
• Contracts
• Quasi-contracts
• Acts or omissions punished by Law
• Quasi-delicts
What are the kinds of obligations based on
Sanction?
• Civil Obligation
• Natural Obligation
• Moral Obligation
Kinds of obligation from viewpoint of persons
obliged
• Unilateral Obligation
• Bilateral Obligation
2 kinds of Bilateral Obligations
• Non-reciprocal Obligations
What if there's a conflict between the Civil
Code and Special Law?
The Special Law prevails unless the contrary has
been expressly stipulated in the new civil code.
What are the innominate contracts?
• Do ut Des
• Do ut facias
• Facio ut des
• Facio ut facias
What are the requirements of a valid contract?
Should not be contrary to law, morals, good
customs, public order and policy.
Kinds of Quasi-contracts
• Negotiorum Gestio
• Solutio Indebiti
Scope of Civil Liability arising from crimes
• Restitution - indemnification or
compensation
• Reparation for damages caused
• Indemnification for consequential
damages
What does Diligence of a Good Father of a
Family mean?
that which is required by the nature of the
obligation or ordinary care of a prudent person
What are the duties of debtor in obligation to
deliver a determinate thing?
1. Preserve the thing
2. Deliver the fruits of the thing
3. Deliver its accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of breach
What are the duties of debtor in obligation to
deliver a generic thing?
1. Deliver a thing which is of the quality
intended by the parties taking into
 consideration the purpose of the
obligation and other circumstances
2. To be liable for damages in case of
fraud, negligence or delay.
2 kinds of rights
• Personal Right / Jus in Personam
• Real Right / Jus in Re
What are the kinds of delivery?
1. Actual Delivery / Tradition
2. Constructive Delivery
5 kinds of constructive delivery
1. Traditio Symbolica
2. Traditio Longa Manu
3. Traditio Brevi Manu
4. Traditio Constitutum Possessorium
5. Quasi Traditio
When does the obligation to deliver arise?
IT DEPENDS.
1. If there is no term or condition, the
thing should be delivered from the
perfection of the contract.
2. If there is a term or condition, when the
term arrives or the condition happens.
What are the kinds of Fruits?
1. Natural Fruits
2. Industrial Fruits
3. Civil Fruits
In a contract of sale, when does the obligation
arise?
From the perfection of the contract even if the
obligation is subject to a suspensive condition
where the price has been paid.
What are the Remedies of a Creditor when
Debtor fails to comply with his obligation? (TO
GIVE)
1. demand specific performance or
compliance of the obligation
2. demand rescission or cancellation
3. demand damages either with or
without either 1. or 2.
What is the effect of fortuitous event in an obli
to deliver a specific thing?
Extinguises the obligation
II. NATURE AND EFFECT OF OBLIGATIONS
What is the effect of fortuitous event in an obli
to deliver a generic thing?
Generic obligations are never extinguised.
(Genus Nunquam Perit)
2 Exemptions where fortuitous event does not
excuse debtor of compliance?
1. If the obligor delays
2. If the debtor is guilty of bad faith
(promised to deliver same thing to two
or more persons who do not have the
same interest)
What are the 2 kinds of delay?
• Ordinary Delay
• Legal Delay
What are the remedies of a Creditor when
Debtor FAILS TO DO
1. To have the obligation performed at
debtor's expense
2. To obtain damages
Can specific performance be ordered?
Specific performance CANNOT be ordered in a
personal obligation to do because this may
amount to Involuntary Servitude which is
prohibited under our constitution
3 instances where demand by the creditor shall
not be necessary in order that delay may exists
1. When the obligation or the law
expressly so declares;
2. When from the nature and the
circumstances of the obligation, it
appears that the designation of the
time when the thing is to be delivered
or the service is to be rendered was a
controlling motive for the
establishment of the contract;
3. When demand would be useless, as
when the obligor has rendered it
 beyond his power to perform. *Also,
when the obligor expressly
acknowledged he's in default.
When does delay begin in a Reciprocal
Obligation?
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not
ready to comply in a proper manner with what
is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the
other begins.
What are the kinds of Mora?
1. Mora Solvendi
2. Mora Accipiendi
3. Compensatio Morae
What are the effects of Mora Accipiendi?
1. Creditor is guilty of breach of obligation
2. Creditor is liable for damages suffered,
if any, by the debtor
3. Creditor bears the loss of the thing due
4. Debtor is not liable for interest from the
time of the creditor's delay
5. Debtor may release himself from the
obligation by consignation or deposit in
court of thing or sum due.
What are the sources or grounds of liability?
1. Fraud / Dolo
2. Negligence / Culpa
3. Delay / Mora
4. Contravention / Violatio

2 kinds of Mora Solvendi What are the kinds of damages?

1. Mora Solvendi ex Re • Moral
2. Mora Solvendi ex persona • Exemplary
• Nominal
What are the requisites for Mora Solvendi? • Temperate
1. Obligation must be due, enforceable & • Actual
already liquidated or determinate in • Liquidated
amount
2. There must be non-performance Damages where amount is determined by
3. There must be a demand, unless not court?
required • Moral
4. Demand must be for the obligation that • Exemplary
is due • Nominal
• Temperate
What are the effects of Mora Solvendi?
1. Debtor may be liable to interest or
Damages where amount is not determined by
damages
court?
2. Debtor may bear the risk of loss
• Actual
3. Debtor is liable even for a fortuitous
• Liquidated
event; although damages may be
mitigated.
2 kinds of Fraud / Dolo
• Dolo Incidente
3 instances when damages or interest may be
lost • Dolo Causante
1. If principal obligation is allowed to lapse
by prescription What is the similarity of Dolo and Culpa?
2. If interest or damages are allowed to Both are voluntary.
prescribe
3. If interest or damages are condoned / What are the differences of Dolo and Culpa?
waived / remitted. • Intention to cause damage;
 • waiver of liability;
• fraud must be proved while culpa is
presumed;
• liability of fraud cant be mitigated while
liability of culpa may be reduced.
Types of Fraud accdg to time of commission
• Past
• Future
Exemption on renouncement of future
negligence
When obli requires exercise of extraordinary
diligence as in case of common carriers
Kinds of Negligence accdg to source of
obligation
Culpa Contractual
Culpa Aquiliana
Culpa Criminal
What is the affect of a victim/plaintiff's own
negligence?
When a plaintiff's own negligence was the
immediate cause of the injury, he can't recover
damages. If contributory, the plaintiff may
recover damages but the court shall mitigate
damages.
What are the degrees of Culpa under Roman
Law?
• Culpa Lata (grave negligence)
• Culpa Levis (ordinary negligence)
• Culpa Levissima (slight negligence)
Kinds of Diligence
1. that agreed upon by the parties
2. that required by the law
3. that expected of a good father of a
family
Factors to be considered in determining the
issue of negligence
1. Nature of the obligation
2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place
Cases when the debtor is responsible for
Fortuitous Events / Case Fortuito
1. When expressly declared by law (ie
default or bad faith)
2. When expressly declared by stipulation
or contract
3. When the nature of the obligation
requires the assumption of risk
What are the essential characteristics of a
Fortuitous event to exempt the debtor from
liability?
1. The cause of the breach of the
obligation must be independent of the
will of the debtor
2. The event must be either unforeseen or
unavoidable
3. The event must be such as to render it
impossible for the debtor to fulfill his
obligation in a normal manner
4. The debtor must be free from any
participation in, or aggravation of, the
injury to the creditor
What happens when there is a combination of
fortuitous event and negligence
• If the fortuitous event was the
proximate cause, the obligation is
extinguished.
• If the negligence was the proximate
cause, the obligation is not
extinguished. (It is converted into a
monetary obligation for damages.)
What are the 2 kinds of interest?
1. Moratory Interest
2. Compensatory interest
Max. Lawful Rates under Former Usury Law
• 12% per annum
• 12% per annum on mortgage of real
estate
• 14% if not recorded
• For pawnshops, 2.5% if less than P100,
2% if P100-500, 14% per annum if more
than P500

What are the rights of Creditors?
1. Exact payment
2. Exhaust debtor's properties, generally
by attachment, except properties
exempted by law
3. Exercise all rights and actions except
those inherent in the person
4. Impugn or rescind acts or contracts
done by the debtor to defraud the
creditors
What are the rights inherent to the person of
the debtor?
• The right to existence, thereby
exempting from the reach of creditors,
whatever he may be receiving as
support.
• Rights or relations of a public character
• Rights of an honorary character
• Rights pertaining to the affairs of the
home and the family
• Rights granted by law only to the debtor
such as the action to revoke a donation
on the ground of ingratitude.
• The right to appear in court
proceedings, like the settlement of an
estate.
What are Debtor's Properties Exempt from
Execution?
• The judgment obligor’s family home as
provided by law, or the homestead in
which he resides, and land necessarily
used in connection therewith;
• Ordinary tools and implements
personally used by him in his trade,
employment, or livelihood;
• Three horses, or three cows, or three
carabaos, or other beasts of burden,
such as the judgment obligor may select
necessarily used by him in his ordinary
occupation;
• His necessary clothing and articles for
ordinary personal use, excluding
jewelry;
• Household furniture and utensils
necessary for housekeeping, and used
for that purpose by the judgment
obligor and his family, such as the
judgment obligor may select, of a value
not exceeding one hundred thousand
pesos;
• Provisions for individual or family use
suffi cient for four months;
• The professional libraries and
equipment of judges, lawyers,
physicians, pharmacists, dentists,
engineers, surveyors, clergymen,
teachers, and other professionals, not
exceeding three hundred thousand
pesos in value;
• One fishing boat and accessories not
exceeding the total value of one
hundred thousand pesos owned by a
fisherman and by the lawful use of
which he earns his livelihood;
• So much of the salaries, wages, or
earnings of the judgment obligor for his
personal services within the four
months preceding the levy as are
necessary for the support of his family;
• Lettered gravestones;
• Monies, benefits, privileges, or
annuities accruing or in any manner
growing out of any life insurance;
• The right to receive legal support, or
money or property obtained as such
support, or any pension or gratuity from
the Government;
• Properties specially exempted by law.
But no article or species of property
mentioned in this section shall be
exempt from execution issued upon a
judgment recovered for its price or
upon a judgment of foreclosure of a
mortgage thereon. (Sec. 13, Rule 39 of
1997 Rules of Civil Procedure).
What is the Extent of Debtor’s Liability?
The debtor is liable with all his property,
present and future, for the fulfillment of his
obligations subject to the exemptions provided c. joint, solidary
by law. 3. by the object of the obligation
a. specific, generic
Rights are transmissible except on what 3 b. positive, negative
cases? c. real, personal
1) if the law provides otherwise; d. possible, impossible
2) if the contract provides otherwise; e. divisible, indivisible
3) if the obligation is purely personal. f. principal, accessory
g. simple, compound If compound
III. Kinds of Obligations — may be
Classification of Obligations according to the i. conjunctive —
PRIMARY classification of the Civil Code demandable at the
1. pure as distinguished from conditional same time
2. pure as distinguished from that with a ii. distributive — either
period or term alternative or
3. alternative or facultative obligations (as facultative
distinguished from conjunctive)
4. joint as distinguished from solidary Classification of Obligations by the Code
5. divisible as distinguished from according to Defects:
indivisible 1. No defect — valid
6. with a penal clause (as distinguished 2. Defective
from those without) a. rescissible
b. voidable
Secondary classification of Obligations by the c. unenforceable
Civil Code d. void
1. unilateral as distinguished from bilateral
(Arts. 1168, 1191). Characteristics of a Condition
2. real and personal (Arts. 1164-1165). 1. Future and uncertain
3. determinate and generic (Arts. 1167, 2. Past but unknown
1168).
4. positive and negative (See Arts. 1167, When is an obligation demandable at once?
1168). 1. when it is a Pure obligation
5. legal, conventional, penal (Arts. 1156, 2. when it is subject to a resolutory
1158, 1159, 1161). condition
6. civil and natural. 3. when it is subject to a resolutory period

Classification of Obligations According to 7 ways of classifying conditions and the

Sanchez Roman
1. according to juridical quality and
efficaciousness:
a. natural — according to natural
law
b. civil — according to civil law
c. mixed — according to both
natural and civil laws
2. by the parties or subjects: a)
a. unilateral, bilateral
b. individual, collective
classifications
• Suspensive and Resolutory conditions
• Potestative, Casual and Mixed
conditions
• Divisible and Indivisible
• Positive and Negative
• Express and Implied Conditions
• Possible and Impossible Conditions
• Conjunctive and Alternative Conditions
2 classifications of impossible conditions
1. Physically Impossible Conditions
2. Illegal Conditions
What extinguishes an obligation with a
positive condition?
1. When the time expires
2. When it becomes indubitable that the
event will not take place
What makes an obligation effective when it
has a Negative condition?
1. When the time indicated has elapsed
2. When it has become evident that the
event will not occur
Requisties of Fulfillment of Condition due to
Debtor's Prevention
1. Voluntarily made
2. Debtor actually prevents fulfillment of
condition
There is no retroactivity with regards to…
1. Fruits or interest
2. Period of prescription
Appropriate actions of creditor to preserve his
rights during pendency of condition
1. Sue in court. Otherwise, there is danger
that creditor will receive nothing when
object is destroyed, hidden or
alienated.
2. Ask for security id the debtor is about to
be insolvent
3. Ask the court to prevent alienation or
concealment (pendente conditionae)
If payment by debtor before fulfillment of
suspensive condition was not by mistake, can
there be recovery?
1. If condition is fulfilled, there is no
recovery due to retroactivity.
2. If not fulfilled, there should be recovery
unless donation is intended
Rules to be observed in case of the
improvement, loss or deterioration of the
thing during the pendency of the condition in
suspensive condition to give: (Applies if
suspensive condition is fulfilled and object is
specific)
• If the thing is lost without the fault of
the debtor, the obligation shall be
extinguished;
• If the thing is lost through the fault of
the debtor, he shall be obliged to pay
damages;
• When the thing deteriorates without
the fault of the debtor, the impairment
is to be borne by the creditor;
• If it deteriorates through the fault of
the debtor, the creditor may choose
between the rescission of the obligation
and its fulfillment, with indemnity for
damages in either case;
• If the thing is improved by its nature, or
by time, the improvement shall inure to
the benefit of the creditor;
• If it is improved at the expense of the
debtor, he shall have no other right
than that granted to the usufructuary.
it is understood that the thing is lost when
1. it perishes, or
2. goes out of commerce, or
3. disappears in such a way that its
existence is unknown or
4. disappears in such a way that it cannot
be recovered;
Effects when a resolutory condition is fulfilled
1. The obligation is extinguished
2. The parties should restore to each other
what they've received
3. Aside from actual things received, the
fruits and interests thereon should be
returned after deducting the expenses
made for their production, gathering &
preservation.
4. Art 1189 rules shall apply to whoever
has the duty to return in case of loss,
deterioration or improvement of the
thing
 5. Courts are given power to determine
retroactivity of fulfillment of resolutory
conditions to do and not to do.
Cases when court can dismiss claim to Rescind
• Trivial causes or slight breaches will not
cause rescission
• If there will be just cause for fixing the
period within which the debtor can
comply
• If the property is now in the hands of an
innocent 3rd party who has lawful
possession of the same
Requisites of a valid term or period
1. It must refer to the future
2. It must be certain
3. It must be physically and legally possible
Kinds of Periods
1. Definite or Indefinite
2. Legal, Conventional/Voluntary, or
Judicial
3. Ex Die or In Diem
Cases when court may fix the period
1. from its nature and the circumstances it
can be inferred that a period was
intended, the courts may fix the
duration thereof.
2. when it depends upon the will of the
debtor.
Cases when court may NOT fix the term
1. When no term was specified by the
parties because no term was even
intended, in which case the obligation is
really a pure one, and demandable at
once, unless of course absurd
consequences would arise.
2. When the obligation or note is “payable
on demand.”
3. When specific periods are provided for
in the law, as in an employment
contract where if no period was agreed
upon, the time of employment depends
upon the time for payment of salary.
4. When what appears to be a term is
really a condition
5. When the period within which to ask
the Court to have the period fi xed has
itself already prescribed.
The debtor shall lose every right to make use
of the period:
1. When after the obligation has been
contracted, he becomes insolvent,
unless he gives a guaranty or security
for the debt;
2. When he does not furnish to the
creditor the guaranties or securities
which he has promised;
3. When by his own acts he has impaired
said guaranties or securities after their
establishment, and when through a
fortuitous event they disappear, unless
he immediately gives new ones equally
satisfactory;
4. When the debtor violates any
undertaking, in consideration of which
the creditor agreed to the period;
5. When the debtor attempts to abscond.
Requisites for making a choice in an
Alternative Obligation
1. made properly so that the creditor or
his agent will actually know;
2. made with full knowledge that a
selection is indeed being made.
3. made voluntarily and freely
4. made in due time, that is, before or
upon maturity
5. made to all the proper persons
6. made without conditions unless agreed
to by the creditor
7. may be waived, expressly or impliedly
Governing rules on the responsibilities of the
debtor on pendency of choice when the right
to choose has been given to Creditor in
Alternative Obligation
1. If one of the things is lost through a
fortuitous event, he shall perform the
obligation by delivering that which the
creditor should choose from among the
 remainder, or that which remains if only
one subsists;
2. If the loss of one of the things occurs
through the fault of the debtor, the
creditor may claim any of those
subsisting, or the price of that which,
through the fault of the former has
disappeared, with a right to damages;
3. If all the things are lost through the
fault of the debtor, the choice by the
creditor shall fall upon the price of any
one of them, also with indemnity for
damages. The same rules shall be
applied to obligations to do or not to do
in case one, some or all of the
prestations should become impossible.
Differentiate Alternative vs Facultative
Obligations
1. No. of Prestations
2. Right of choice
3. Loss through Fortuitous event
4. Loss through fault of debtor
Kinds of Obligations accdg to Number of
parties
• Individual Obligation
• Collective Obligation
Types of Collective Obligations
• Joint Obligations
• Solidary Obligations
There is solidary liability only when:
• The obligation expressly so states
• The law requires solidarity
• The nature of the obligation requires
solidarity
Kinds of solidarity
• Passive Solidarity
• Active Solidarity
• Mixed Solidarity
• Conventional Solidarity
• Legal Solidarity
• Real Solidarity
Instances when the law imposes solidarity
• Obligations arising from torts
• Obligations arising from quasi-contracts
• Legal provisions regarding the devisees
and legatees
• Liability of principals, accomplices and
accessories of a felony
• Bailees in commodatum
Consequences of Joint Liability
1. Vitiated consent on part of 1 debtor
does not affect the others
2. Insolvency of 1 debtor does not make
the others liable for his share
3. Demand by the creditor on 1 joint
debtor puts him in default, but not the
others since the debts are distinct
4. When the creditor interrupts the
running of the prescriptive period by
demanding judicially from 1, the others
are not affected
5. Defenses of 1 debtor are not necessarily
available to others
Characteristics of a Joint Indivisible Obligation
1. The creditor must proceed against all
debtors
2. Demand must be made on all joint
debtors
3. There is monetary obligation for
damages if any one of the debtors does
not comply
4. If any joint debtor becomes insolvent,
the others are not liable
5. Delivery must be made to all joint
creditors, unless 1 is specifically
authorized by the others
6. Each joint creditor is allowed to
renounce his proportionate credit
Kinds of solidary obligations accdg to legal tie
• Uniform
• Non-uniform or varied
The essense of solidarity
the right of each creditor to enforce the rights
of all, and the liability of each debtor to answer
for the liabilites of all
Similarities of Passive Solidarity and Suretyship
• Both guarantee for another person
• Both can demand reimbursement
Differentiate Passive Solidarity and Suretyship
1. Solidary debtor is indebted for his own
share, surety is indebted for the share
of the principal debtor
2. solidary debtor can be reimbursed what
he has paid minus his own share; surety
can be reimbursed for everything he
paid
3. If a solidary debtor receives extension
of period, the others are still liable for
whole amount minus the share of
debtor who received extension. If a
principal debtor receives extension,
without the surety's consent, the surety
is released
2 cases when paying debtor cannot get
reimbursement from co-debtors
• Payment was made after the obligation
prescribed
• Payment was made after the obligation
became illegal
Number of years laid by law for Prescription to
occur
10 years for written contracts, obligations
created by law and by judgement
6 years for oral contracts and quasi-contracts
4 years for quasi-delicts and rights of plaintiff
Kinds of Defenses of a solidary debtor
1. Those derived from the nature of the
obligation (complete defense) like
extinguishment of obligation, illegal or
absence of consideration, absolute
simulation, non-fulfillment of
suspensive condition, statute of frauds,
all debtors incapacitated to give
consent and vitiated consent
2. Those personal to the debtor sued
(generally complete defense except
non-fulfillment yet of condition)
3. Defense personal to other solidary
debtors (partial defense)
Kinds of Division
1. Qualitative Division
2. Quantitative Division
3. Intellectual / Moral / Ideal Division
Kinds of Indivisibility
1. Legal Indivisibility
2. Conventional Indivisibility
3. Natural or Absolute Indivisibility
Obligations that are deemed indivisible
1. Definite things
2. Those not susceptible of partial
performance
3. Provided by law to be indivisible even if
the thing is physically dividible (i.e
taxes)
4. Intended by the parties
Obligations that are deemed divisible
1. Execution of certain number of days of
work
2. Accomplishment of work by metrical
units
3. Analogous things which by their nature
are susceptible of partial performance
Kinds of Penal Clauses
1. Legal Penal Clause
2. Conventional Penal Clause
1. Subsidiary
2. Joint
1. Compensatory
2. Punitive
Purposes of Penal Clause
1. To insure performance
2. To substitute a penalty for the
indemnity for damages and payment of
interest, in case of noncompliance
Instances when in addition to penalty, the
creditor can recover damages and interests
1. stipulated by the parties
2. obligor refuses to pay penalty
3. obligor is guilty of fraud
When can penalty be reduced?
1. If the principal obligation has been
partly complied with
2. If the principal obligation has been
irregularly complied with
3. If the penalty in inquitous or
unconscionable even if there has been
no performance
The penal clause cannot be enforced if
1. The breach is the fault of the creditor
2. Fortuitous event intervened, unless
debtor expressly agreed on his liability
in case of fortuitous event
3. The debtor is not yet in default
Causes of extinguishment of obligations
1. By payment or performance;
2. By the loss of the thing due;
3. By the condonation or remission of the
debt;
4. By the confusion or merger of the rights
of creditor and debtor;
5. By compensation;
6. By novation.
Other causes of extinguishment of obligations
governed in the code
1. annulment
2. rescission
3. fulfillment of a resolutory condition,
4. prescription
Other causes of extinguishment of obligations
1. Death of a party in personal obligation
2. Arrival of resolutory term
3. Change in civil status
4. Compromises
5. Mutual dissent or withdrawal
6. Impossibility of Fulfillment
7. Fortuitous events
Classifications of Extinguishment by Castan
1. Voluntary
a. Performance (payment or
performance; consignation)
b. Substitution of Performance
(compensation; novation;
dation)
c. Agreement to Release
(subsequent to obligation:
unilateral waiver, natural
waiver, remission, mutual
dissent, compromise;
Simultaneous with obligation:
resolutory term, resolutory
condition)
2. Involuntary
a. By failure to bring an action
(prescription)
b. Resolutory condition (merger or
confusion, death of party in
personal obli, change in civil
stat)
c. By reason of the object
(impossibility; loss of the thing)
Payment consists of
1. Delivery of money
2. The performance in any other manner
of an obligation
Requisites of a valid payment
1. The very thing or service contemplated
must be paid
2. Fulfillment must be complete
Exceptions to the requisites of valid payment
1. When the obligation has been
substantially performed in good faith
2. When the obligee accepts the
performance, knowing its irregularity or
incompleteness and without expressing
any protest or objection
3. When there is an express stipulation
4. When the debt is in part liquidated and
part unliquidated
Remedies of Creditor on incomplete or
irregular performance
1. The creditor may properly reject it
2. In case of acceptance, the law considers
that he waives his right. The whole
obligation is extinguished.
Persons from whom Creditor must accept
payment
1. the debtor
2. any person who has an interest in the
obligation (I.e. guarantor)
3. A 3rd person who has no interest in the
obligation when there is stipulation that
he can make payment
The creditor can refuse payment by a stranger
except:
1. If there is a stipulation allowing this
2. If said third person has an interest in
the fulfillment of the obligation
Effects of payment of a 3rd person
1. If with the knowledge and consent of
the debtor, the payor is entitled to
REIMBURSEMENT and SUBROGATION
to such rights as guaranty, penal clause
or mortgage
2. If without the knowledge or against the
will of the debtor, the payor is entitled
to BENEFICIAL REIMBURSEMENT. The
payor is not entitled to subrogation. He
can only recover insofar as the payment
has benefitted the debtor.
Instances when recovery by a 3rd person
should come from the creditor:
1. Solutio Indebiti
2. Debt has prescribed
3. Debt has been completely remitted
4. Debt has already been paid
5. Legal compensation has taken place
Rights which may be exercised by the person
subrogated
1. Mortgage
2. Guaranty
3. Penalty or Penal Clause
If person paying has no capacity to give
1. Payment is not valid
2. Creditor cannot be compelled to accept
it
3. The remedy of consignation would not
be proper
Exemption on validity of payment of a 3rd
person who have no capacity to alienate and
no free disposal of the thing due
When a minor below 18y/o who has entered
into a contract without the consent of the
parents or guardians voluntarily pays a sum of
money or delivers a fungible thing in fulfillment
of the obligation, there shall be no right to
recover the same from the obligee who has
spent or consumed it in good faith.
To whom payment must be made
1. The person whose favor the obligation
has been constituted (creditor)
2. His successor in interest
3. Any person authorized to receive it (by
creditor or by law)
Payment to a person who is incapacitated to
administer his property shall be valid on these
2 cases
1. if he has kept the thing delivered
2. insofar as the payment has been
beneficial to him
Payment to 3rd person has redounded to the
benefit of the creditor and need not be proved
on these cases.
1. If after the payment, the third person
acquires the creditor’s rights;
(subrogation)
2. If the creditor ratifies the payment to
the third person; (ratification)
3. If by the creditor’s conduct, the debtor
has been led to believe that the third
person had authority to receive the
payment. (estoppel)
Requisites on paying a person in possession of
the credit
1. Payment by payor must be made in
good faith
 2. The payee must be in possession of the
credit itself, not merely the document
evidencing the credit.
Exceptions to Art 1244: The debtor of a thing
cannot compel the creditor to receive a
different one, although the latter may be of
the same value as, or more valuable than that
which is due. In obligations to do or not to do,
an act or forbearance cannot be substituted by
another act or forbearance against the
obligee’s will.
1. In case of facultative obligations
2. In case there is another agreement
resulting in either DATION IN PAYMENT
or NOVATION
3. In case of waiver by the creditor
Synonyms of Dation in Payment
• Datio in Solutum
• Dacion en Pago
• Adjudicacion en pago
Requisites of Dation in Payment
1. Existence of a monetary obligation
2. Alienation to the creditor of a property
by the debtor with the consent of the
creditor
3. Satisfaction of the money obligation of
the debtor
Special Forms of Payment
1. Application of Payment
2. Dation in Payment
3. Payment by Cession
4. Tender of Payment and Consignation
Requisites of Application of Payment
1. there must be only 1 debtor and 1
creditor
2. There must be 2 or more debts of the
same kind
3. All of the debts must be due, except if
there's stipulation to the contrary, or
application of payment is made by the
party for whose benefit the term has
been constituted
4. Amount paid by the debtotr must not
be sufficient to cover the total amount
of all the debts
Legal Application of payment
1. If neither the debtor or the creditor
makes any application of payment, the
debt which is most onerous to the
debtor, among those which are due,
shall be deemed to have been satisfied
2. If the debts due are of the same nature
and burden, payment shall be applied
to all of them proportionately
Requisites of Payment by Cession
1. Plurality of debts
2. Partial or relative insolvency of the
debtor
3. Acceptance of the cession by the
creditors
Differentiate Dation in Payment from Payment
by Cession
1. no. of creditors
2. financial state
3. value of property
4. effect
5. properties affected
6. ownership transfer
7. novation
Partial performance is allowed :
1. When there is an express stipulation
2. When different prestations are subject
to different conditions or different
terms,
3. When the debt is in part liquidated and
part unliquidated
4. When a joint debtor pays his share or
the creditor demands the same,
5. When a solidary pays only the part
demandable because the rest are not
yet demandable on account of their
being subject to different terms and
conditions
6. In case of compensation, when one
debt is larger than the other, it follows
that a balance is left
 7. When work is to be done by parts
Payment by means of Mercntile Documents
does NOT extinguish the obligation until:
1. they have been cashed
2. they have been impaired through the
fault of the creditor
Requisites of Art 1250: In case an
extraordinary infl ation or defl ation of the
currency stipulated should supervene, the
value of the currency at the time of the
establishment of the obligation shall be the
basis of payment, unless there is an agreement
to the contrary.
1. The decrease in the value of the
currency could not have reasonably
foreseen by the parties
2. There must be a declaration of such
extraordinary inflation or deflation by
the Bangko Sentral. Without such
declaration, the creditors cannot
demand an increase, and the debtors a
decrease, of what is due to or from
them.
Place of payment
1. If there is a stipulation — in the place
DESIGNATED
2. Without stipulation, payment for a
DETERMINATE THING shall be made
wherever the thing might be at the
moment the obligation was constituted.
3. In any other case the place of payment
shall be the domicile of the debtor.
Cases when debtor shall borne additional
expenses to deliver payment
1. If the debtor changes his domicile in
bad faith
2. after he has incurred in delay
If a debt is not yet due, payment can only be
applied if:
1. the parties so stipulate
2. when the application of payment is
made by the party for whose benefit
the term has been constituted
Kinds of Assignment
1. Legal - governed by the insolvency law
2. Voluntary - creditors must agree
Effects of voluntary assignment
1. The creditors do not become the
owners, they are merely assignees with
authority to sell
2. The debtor is released only up to the
amount of the net proceeds of the sale,
unless there is stipulation to the
contrary
3. Creditors will collect credits in the order
of preference agreed upon, or in default
of agreement, in the order ordinarily
established by law
Consignation alone shall produce the same
effect in the following cases:
1. When the creditor is absent or
unknown, or does not appear at the
place of payment;
2. When he is incapacitated to receive the
payment at the time it is due;
3. When, without just cause, he refuses to
give a receipt;
4. When two or more persons claim the
same right to collect;
5. When the title of the obligation has
been lost
Creditor is justified in refusing tender of
payment when the payment is INVALID. To be
valid, it must:
1. be made in legal tender
2. include interest due
3. be unconditional, unless accepted by
creditor
4. be due
Requisites of Consignation
1. The debt sought to be paid must be due
2. There must be a valid and unconditional
tender of payment or any of the causes
stated by law for effective consignation
without previous tender of payment
exists
 3. The consignation of the thing due must
first be announced to the persons
interested in the performance of the
obligation
4. Consignation shall be made by
depositing the things due at the
disposal of judicial authority
5. The consignation having been made,
the interested parties shall also be
notified thereof.
When can the debtor withdraw the thing
consigned, allowing the obligation to remain in
force
1. Before the creditor has accepted the
consignation, or
2. before a judicial declaration that the
consignation has been properly made
Effects of consignation
1. If the creditor accepts the thing or
amount deposited without contesting
the validity or efficacy of the
consignation, the obligation is
extinguished
2. If the creditor contests the validity or
efficacy of the consignation or if the
creditor is not interested or unknown or
is absent, the result is litigation. If the
debtor complied with all the requisites,
the obligation is extinguished. (Here,
running of interest is suspended.)
Effects of improper consignation
1. The obligation remains
2. If at the time of the consignation, the
debt is already due, and the requisites
are absent, the debtor is in default
Effects of withdrawal of consigned thing
1. The obligation remains
2. The creditor loses any preference over
the thing
3. The co-debtors, guarantors and sureties
are released
Requisites to extinguish obligation due to a
fortuitous event
1. The thing lost must be DETERMINATE
2. The thing is lost without the fault of the
debtor
3. The thing is lost before the debtor has
incurred in delay
When fortuitous event does not exempt debtor
from liability
1. When by law, the obligor is liable for
fortuitous events
2. When by stipulation, obligor is liable for
fortuitous events
3. When the nature of the obligation
requires assumption of risk
4. When the loss of the thing due is partly
to the fault of the debtor
5. When the loss of the thing occurs after
the debtor incurred in delay
6. When the debtor promised to deliver
the same thing to 2 or more persons
who do not have the same interest
7. When the debt proceeds from a
criminal offense
When is there loss?
• When the thing is indeterminate, it is
never lost. (Genus Nunquam Perit)
• When the thing is determinate
• When it perishes
• When it goes out of commerce
• When it disappears in a way that it
cannot be recovered
• When it disappears in a way that its
existence is unknown
Kinds of impossibility
1. Physical Impossibility
2. Legal Impossibility
Effect of relative impossibility or doctrine of
unforeseen events
When the service has become so difficult as to
be manifested beyond the contemplation of the
parties, the obligor may also be released
therefrom, in whole or in part.
Requisites of Art 1267: When the service has
become so difficult as to be manifested
beyond the contemplation of the parties, the
obligor may also be released therefrom, in
whole or in part.
1. The event or change in cicumstances
could not have been foreseen at the
time of the execution of the contract
2. It makes the performance of the
contract extermely difficult but not
impossible
3. The event must not be due to the act of
any of the parties
4. The contract is for a future prestation
Principle of Subjective Impossibility
When there is no physical or legal loss, but the
thing object of the obligation belongs to
another, the performance of the debtor
undoubtedly becomes impossible. Failure of
performance is imputable to the debtor. Thus,
the debtor must indemnify the creditor for the
damages suffered by the latter.
Effect of Loss on Reciprocal Obligations
If an obligation is extinguished by the loss of the
thing or impossibility of performance through
fortuitous events, the counter-prestation is also
extinguished. The debtor is releasedfrom
liability but he cannot demand the prestation
which has been stipulated for his benefit. He
who gives nothing has no reason to demand
anything.
Requisites of condonation
1. It must be gratuitous
2. It must be accepted by the debtor
3. The obligation must be demandable
4. The parties must have the capacity
5. It must not be inofficious 6 If made
expressly, it must comply with the
forms of donation
Kinds of remission
1. Complete or Total
2. Partial
1. Express or Formal
2. Implied or Tacit
1. Inter Vivos
2. Mortis Causa
Requisites of Confusion
1. The characters of creditor and debtor
must be in the same person
2. it must take place in the person of
either the principal debtor or the
principal creditor
3. It must be complete and definite
Requisites of Compensation
1. There must be 2 parties, who, in their
own right, are principal creditors and
principal debtors of each other (except
in case of guarantor)
2. Both debts must consist in money, or if
the things due are fungibles, they must
be of the same kind and quality
3. Both debts must be due
4. Both debts must be liquidated and
demandable
5. There must be no retention or
controversy commenced by 3rd persons
over either of the debts and
communicated in due time to the
debtor,
6. Compensation must not be prohibited
by law
Differentiate Compensation and Confusion
1. In compensation, there are 2 persons
who are mutually debtors and creditors;
while in Confusion, there is only 1
person where qualities of debtor and
creditor are mergedd
2. In compensation, there must be at least
2 obligations, while in Confusion, there
is only 1 obligation
3. In compensation, there is indirect
payment, while in Confusion, there is
impossibility of payment
Kinds of Compensation
1. Legal
2. Voluntary
 3. Judicial
4. Facultative
1. Total
2. Partial
Differential Compensation and Payment
1. Compensation takes effect by operation
of law; while Payment takes effect by
the act of the parties (involves action
and delivery)
2. In Compensation, capacity to give and
acquire is not necessary; while in
Payment, capacity to give and to
acqquire is essential
3. Compensation, as a rule, is partial;
while Payment is complete and
indivisible
Differential Compensation and Counterclaim
1. In Compensation, 2 debts must consist
in money or if fungibles, must be the
same kind and quality; while in
Counterclaim, this is not necessary
2. In Compensation, both debts must be
liquidated; while Counterclaim does not
require the debts be liquidated
3. Compensation need not be pleaded;
while Counterclaim must be pleaded to
be effectual
What are the debts not subject to
compensation
1. debts arising from contracts of deposit
2. debts arising from contracts of
commodatum
3. claims for support by gratuitous title
4. Obligations arising from criminal
offenses
5. Certain obligations in favor of
government (i.e. taxes are not subject
to compensation because the
government and taxpayers are not
mutually creditors and debtors of each
other)
In order that compensation may be proper, it
is necessary:
1. That each one of the obligors be bound
principally, and that he be at the same
time a principal creditor of the other;
2. That both debts consist in a sum of
money, or if the things due are
consumable, they be of the same kind,
and also of the same quality if the
latter has been stated;
3. That the two debts be due;
4. That they be liquidated and
demandable;
5. That over neither of them there be any
retention or controversy, commenced
by third persons and communicated in
due time to the debtor.
Affirmative requisites of Legal Compensation
1. That each one of the obligors be bound
principally, and that he be at the same
time a principal creditor of the other;
2. That both debts consist in a sum of
money, or if the things due are
consumable, they be of the same kind,
and also of the same quality if the
latter has been stated;
3. That the two debts be due;
4. That they be liquidated and
demandable;
Negative Requisites of Legal Compensation
That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
Rules on Assignment when there is right to
compensation
1. If assignment is made with the consent
of the debtor, the debtor cannot set-up
compensation as there was a waiver,
unless right to compensation is
reserved
2. If assignment is made with the
knowledge but without the consent of
the debtor or against his will,
compensation can be set-up on debts
previous to assignment (debts maturing
before announcement)
 3. If assignment is made without the
knowledge of the debtor, he can set-up
compensation as a defense for all debts
maturing prior to his knowledge of the
assignment
Requisites of Novation
1. A previous valid obligation
2. Agreement of the parties to the new
obligation
3. Extinguishment of the old obligation
4. Validity of the new obligation
Kinds of Novation
1. Objective or Real Novation
2. Subjective or Personal Novation
3. Mixed Novation
1. Express
2. Implied
1. Legal
2. Conventional
1. Total or Extinctive
2. Partial or Modificatory
How can an obligation be modified?
1. Changing their object or principal
conditions;
2. Substituting the person of the debtor;
3. Subrogating a third person in the right
of the creditor.
Forms of substitution of Debtor
1. Expromision
2. Delegacion
Requisites of Expromision
1. Initiative of substitution must emanate
from the new debtor
2. Consent of the creditor to the
substitution
Requisites of Delegacion
1. Initiative of substitution must emanate
from the old debtor
2. Consent of the new debtor
3. Acceptance by the creditor
Kinds of Personal Novation
1. Substitution
2. Subrogation
Rights of the new debtor who pays
1. In expromision, payment gives the new
debtor the right to BENEFICIAL
REIMBURSEMENT
2. In Delegacion, the new debtor is
entitled to REIMBURSEMENT and
SUBROGATION
Parties in Delegacion
1. Delegante - original debtor
2. Delegatorio - creditor
3. Delegado - new debtor
Effects of insolvency of the new debtor
1. In expromision, the new debtor's
insolvency or non-fulfillment shall NOT
revive the original debtor's liability to
the creditor whether the substitution is
effected with or without the knowledge
or against the will of the original debtor
2. In delegacion, the creditor can sue the
old debtor only when the insolvency
was prior to the delegacion and publicly
known or when the old debtor knew of
such insolvency at the time he
delegated the obligation
Effects if the old obligation was void
1. If the old obligation is void, there is no
valid novation
2. If the old obligation was voidable and
already been annulled, there is no more
obligation. Therefore, the novation is
void.
If the old obligation is voidable and not yet
annulled, there is valid novation if:
1. Annullment may be claimed only by the
debtor
2. When ratification validates acts which
are voidable
Kinds of subrogation
1. Coventional
2. Legal

1. Total Subrogation
2. Partial Subrogation

Differentiate Conventional Subrogation from

Assignement of Rights
1. In Conventional Subrogation, debtor's
consent is required; while in
Assignment of Rights, debtor's consent
is not required
2. Conventional Subrogation extingsuishes
the obli and gives rise to a new one;
while in Assignment of Rights, there is
transmission of rights to the 3rd person
without modifying the obligation
3. In Conventional Subrogation, defects
and vices in the old obli are cured; while
in Assignment of Rights, defect and
vices in the old obli are not cured
4. Conventional Subrogation takes effect
upon moment of novation or
subrogation; while Assignment of Rights
takes effect upon notification

When is it presumed that there is legal

subrogation?
1. When a creditor pays another creditor
who is preferred,even without the
debtor’s knowledge;
2. When a third person, not interested in
the obligation, pays with the express or
tacit approval of the debtor;
3. When, even without the knowledge of
the debtor, a person interested in the
fulfillment of the obligation pays,
without prejudice to the effects of
confusion as to the latter’s share.